Henry Ford's Five-Dollar Day

The story

In the early 1910s, Ford's Highland Park factory near Detroit, with about 14,000 workers, was changing how things were made. Workers stood along a moving assembly line, each doing one small task over and over as cars rolled past. Experiments with the line cut the time to build a Model T from about 12 and a half hours to about 93 minutes. Cars became cheaper, and Ford sold more and more of them.

But the work was tiring and dull, and workers kept leaving. In 1913 Ford hired about 50,000 people just to keep an average workforce of about 13,600. That is a turnover rate of about 370 percent, meaning the company had to replace its whole workforce several times in a single year. Every new hire had to be found and trained, and a line full of beginners ran slowly and made mistakes. All that hiring and training was a hidden cost that never showed up on the price tag of a car.

On January 5, 1914, Henry Ford and his business partner James Couzens announced a surprise. Starting January 12, many workers would earn $5 a day, roughly double the old pay of a little over $2, and the workday would be cut from nine hours to eight. Ford estimated the change would add about $10 million a year to its payroll. Newspapers around the country covered the story, and within days thousands of job seekers crowded outside the factory. Some crowds grew rowdy and were sprayed with fire hoses in icy January weather.

The $5 day came with strings attached. Workers kept their basic pay of about $2.30 a day no matter what, but the rest was a "profit-sharing" bonus that had to be earned by more than doing the job well. At first it went only to men over 22 who had worked at Ford for at least six months. Ford set up a Sociological Department, and its investigators visited workers' homes to check on things like drinking, gambling, saving money, keeping a clean house, and taking in boarders. Many people today see those home visits as an invasion of privacy. In practice, the department let many violations slide, and close to 90 percent of workers who applied eventually received the bonus.

Did it pay off for the company? Workers began staying much longer, the line ran more smoothly, and some workers suggested ways to cut costs. Ford's profits kept rising, from about $27 million in 1913 to about $32 million in 1914. Other carmakers and parts suppliers soon raised their own wages to keep up. Ford also liked to point out that well-paid workers could afford to buy the cars they built, creating new customers for the Model T.

The five-dollar day is often told as a story of a generous boss. The fuller truth is more interesting. It was a practical answer to a costly business problem, it really did make many workers' lives better, and it also gave the company unusual control over their private lives. The Sociological Department was largely shut down by 1921.